The Finance Bill 2025 brings an amendment to Section 9 of the Income-tax Act, 1961, which addresses the deemed accrual of income in India for foreign entities or non-residents. Under existing provisions, business income from a connection in India or significant economic presence in India is considered income accrued in India. The amendment clarifies that transactions involving the purchase of goods in India solely for export will not constitute significant economic presence and, therefore, will not be deemed to have accrued or arisen in India. Previously, such activities could have been considered as having significant economic presence under the current provisions, leading to the tax implications of income arising in India. This change aims to rectify the situation by excluding export-related purchases from the scope of significant economic presence.
FAQs: Harmonization of Significant Economic Presence applicability with business connection – Budget 2025
Q.1 What provisions are contained in section 9 of the Income-tax Act, 1961?
Ans. Section 9 specifies the incomes that are deemed to accrue or arise in India. It specifically applies to incomes that are deemed to accrue or arise to foreign entities or non-residents in India.
Q.2 How is a business income considered to have deemed to accrue or arise in India?
Ans. In the case of a business, income through or from any business connection in India or from significant economic presence in India (which is considered as business connection) is considered as income deemed to be accrued or arising in India.
Q.3 What amendment has been carried out section 9 of the Income-tax Act, 1961?
Ans. An amendment has been carried out to provide that the transactions or activities of a non-resident in India which are confined to the purchase of goods in India for the purpose of export shall not constitute significant economic presence of such non-resident in India.
Q.4 What is the rationale for said amendment to section 9?
Ans. Under the current provisions, income through or from operations which are confined to the purchase of goods in India for the purpose of export was not considered as accrued or arising in India as it does not constitute a ‘business connection’ in India.
However, due to operation of current provisions relating to ‘significant economic presence’ such transactions or activities could have been deemed to accrue or arise in India. This has now been corrected.
